FW: Bond Market Watch: Local Factors Outshined by Rising US Rates

 

 

Dear all,

Bond Market Watch: Local Factors Outshined by Rising US Rates

Malaysia: Raised to neutral on cheapened yields to our target levels

Raised to neutral. Motivated by the cheapening of yields to/above our target levels, we raised our outlook on MGS last week to neutral from mildly bearish. The curve has cheapened to levels that we think will begin to attract domestic real money demand. This is important, as foreign demand may stall in the near term amid uncertainty over the direction of US rates and narrowing yield differentials. Having local bids helps stabilize the curve. Our forecasts for 10y MGS yield is unchanged, at 4.10% by end-1H18 and 4.20% by end-2018.

China: Yields down on RRR cut

Maintain at mildly bearish. The CGB market has outperformed our expectation. While the liquidity injection through RRR cut is not a broad-based easing, successive measures of targeted easing and with the PBOC becoming more proactive in managing liquidity to smoothen any funding stress, the market has understandably taken these signals as a green light to long bonds. More RRR cuts are possible in 2018, but such measures may not necessarily be taken as easing-biased moves. The narrowing of spreads between CGB and UST yields, to 60-65bps for the 2y and 10y tenors, could limit how low the CGB yields can go, in our view, more so when the USD is regaining some strengths.

Indonesia: Cautiously optimistic

Raised to mildly bullish from neutral. We continue to see value in IndoGB, given its improved macro stability, high-yielding appeal and a slowdown in inflation. It was a good entry level when the 10y IndoGB yield cheapened to the 7.10-7.20% region last week, although the near-term concern remains the risk rising USDIDR because of a stronger USD. We are cautiously optimistic.

Singapore: Raised to neutral from mildly bearish

Raised to neutral. While rising US rates remains a concern and the SGS has regained a fairly strong correlation with the UST movements, we think the risk-reward has become more balanced after the 15-25bps adjustment in yields in the past one month. We draw some comfort from our expectation that there continues to be buy-on-dip demand and limited supply of long bonds in the near term.

Thailand: Higher net supply in 2Q18

Maintain at mildly bearish. Short term prospects of ThaiGB is underpinned by still accommodative monetary policy and mild inflation. But we see some factors that may pose risks in the coming months. Net supply is expected to be higher in 2Q18 (1Q18: +THB49b) given only THB4b redemption in May and none in April and June.

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Bond Market Watch


Regards,

Winson Phoon, ACA
(65) 6231 5831
winsonphoon@maybank-ke.com.sg
 
Se Tho Mun Yi
(603) 2074 7606
munyi.st@maybank-ib.com


Anup Kumar
(62) 21 2922 8888 Ext 29692
akumar@maybank.co.id


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